Changes to the 2020 Tax Filing Season will affect your 2019 federal income taxes. Most of the changes were input when the 2018 tax reform law was passed. During that year, changes were made to the deductions and tax rates that were already in place. The deduction limits were nearly doubled as well as the income threshold, by hundreds of dollars, for the calculations of tax percentage rates. There are still some more changes to keep in mind when it is time to file your 2019 tax return.
Under President Donald Trump’s Tax Reform changes, it put a stop to the “shared responsibility Payment or penalty”. The Shared Responsibility Penalty was put in place to penalize individuals for not having health insurance coverage. As of December 31, 2018, that penalty has been reduced to zero. Starting in the 2019 tax year, which is filed in the 2020 Tax Season, the penalty will not be enforced. You are no longer required to file a Form 8965, Health Coverage Exemptions with your federal income tax returns if you did not have health insurance. Although you may seem free and clear from being penalized for not having health insurance, we do encourage you to maintain an affordable policy to reduce large financial surprises should your health take a decline.
Another tax reform change that will affect your 2019 tax year return is related to the Alimony Deduction. The tax reform laws state that any divorces and separate agreements settled after tax year 2018 will not be allowed to claim a deduction for alimony. Alimony payments made by the payor are not deductible. Additionally, Alimony payments are no longer counted as taxable income for the person who is receiving them. Divorces and separations that were done prior to 2018 will still be recognized in the system as being finalized earlier. For those individuals, a tax break for the Alimony Deduction can still be taken. You don’t have to itemize your tax return to claim the deductions. Alimony deductions can be claimed directly on the Form 1040, Schedule 1 as an above-the-line deduction.
One of the biggest events that caused a change to the 2020 tax filing season is the COVID-19, coronavirus outbreak. As a result of the coronavirus outbreak, the government decided to push back Tax Day. In other words, this means the date you are required to file a tax return and pay the tax amount that is due, was postponed. Originally, the tax deadline to file and pay your taxes are due on April 15, 2020. This date has been postponed to July 15, 2020. This was put in place to help ease the tax requirements while the country was suddenly hit with a deadly worldwide pandemic, Covid-19 (Coronavirus). This three-month extension of the tax deadline applies only to federal income taxes and we suggest you should follow up the state and local government to see if deadlines have been postponed as well. Each state has its own set of rules and guidelines to follow based on the severity of the pandemic that they are experiencing.
Due Dates for Self-Employed taxpayers who pay quarterly taxes, also known as estimated tax payments, have been affected by the Coronavirus outbreak also. There are four scheduled payment dates throughout the year that your estimated tax payments are to be made by. The first payment period is for the months of January 1 to March 31. The due date is normally set for April 15, 2020. The First payment deadline has been pushed back to July 15, 2020. This change was put into place alongside the postponing of filing due date when the country was hit with Coronavirus. This change was designed to allow time for business owners to regain income back that has been lost from the Pandemic. Additionally, this date was postponed allowing businesses to use their payroll taxes to keep key employees on payroll. Instead of submitting the funds to the Internal Revenue Service, there is a tax break offered when it is time to file your quarterly Form 941, Employers Quarterly Federal Tax Return that can offset the cost to pay employees during COVID-19. Let us keep in mind though, that the second quarter payments are still due on June 15, 2020. This would be the payment date for the period months of April 1 to May 31. The deadline for the third quarter payment remains the same date of September 15, 2020. The fourth quarter deadline remains unchanged with the payment date of January 15, 2021. Resulting in the payment deadlines being closer than normal, there may be additional changes made later down the line as the pandemic takes its course. The further changes could bring postponed payment due dates for the remainder quarters just like we have seen in the first but so far there is no guarantee of that. It is best to stay on top of the changes made by the Internal Revenue Service to ensure compliance. The information is always available directly through the www.irs.gov website.
If you are still faced with the challenge of being able to file your tax return by the extended due date of July 15, 2020, then you can request an extension of time to file. A request for an extension of time to file does not allow an extension for time to pay the tax balance that is due. Make sure that all tax payments are made at the time you file an extension. If payment is not made timely then you could be faced with additional penalties and interest added on top of your tax balance. To request an extension, you will have to file a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This request is automatic, so you do not have to wait for it to be approved. Once you submit the form, your tax deadline date will be extended to October 15, 2020. If you are required to file business tax returns and are unable to file timely than you must file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. When filed, the deadline for filing your tax return is automatically extended also. Once the request is prepared there are two methods by which the request can be submitted and that is through the mail or by filing electronically.
Whether you chose to file your return timely or you submit a timely request for an extension it is best that you contact a trained tax professional to assist you with the process. They are knowledgeable and trained even with the newest laws and updates. There are many changes that have been made in the past few years and you want to make sure that you do not miss out on an opportunity of utilizing them. Not everyone will benefit from the changes as each and every tax situation differs from person to person. If venturing out to a tax preparer is not something that is doable during the COVID-19 pandemic, then there are many online programs in which you can use to submit returns electronically. The Internal Revenue Service has a free file program that also allows taxpayers with income below $69,000 to be able to file their tax return electronically, for free. Although you are not disqualified from using free file if your income is above $69,000, there will just be limited resources and guidance.